Transferring your property to family members can have several benefits for tax implications and your relationships. Within this article, we’ll discuss how you can share ownership of your home through a transfer of equity. Additionally, we’ve broken down the tax implications and criteria for transferring the legal owner’s rights of your property to your child via a deed of gift.
Whether it is to avoid inheritance tax deductions or to help your child get a foot on the property ladder, transferring ownership of your house to a family member in the UK requires legal expertise and guidance. Working alongside certified conveyancing solicitors is the most effective way to complete the legal process seamlessly. Get your quote from My Conveyancing Specialist here.
Transfer of Equity
A transfer of equity can occur for many reasons, changes in your relationship or who you wish to share the property with will influence whether you want to add or remove certain family members to your property deeds.
A transfer of equity allows you to alter the ownership of the property without putting it on the market. As the original owner, you will also remain on the deed with a specified proportion of ownership.
Joint Tenants vs Tenants in Common
Generally speaking, there are two formats of joint ownership associated with most domestic properties. These are ‘joint tenants’ or ‘tenants in common.’ The two terms apply according to the percentage of property and conditions under which the property is owned.
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Joint Tenants
Married couples or those in long-term relationships are most commonly seen to purchase properties or transfer equity to become joint tenants. This term indicates that the two parties have equal rights to ownership of their property.
Under these circumstances, if one of the individuals passes away, the right of survivorship applies. This means the property is wholly owned by the surviving spouse.
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Tenants in Common
Entering into property ownership as tenants in common provides clarity towards the contribution and rights to the property. For example, if one individual puts towards 75% of the property cost and the other party provides 25%, the couple may want to establish the proportion of ownership should the property need to be sold.
The ownership contributions may be fixed from the onset of ownership, but they can also vary over time. If the individual that offered 25% of the property costs received a sum of money or had a pay rise at their job, they might decide to increase their proportion of ownership by purchasing shares from their partner.
The benefit of being tenants in common is that you always know your proportion of the property. When it comes to selling the property or separating, each party knows how much of the value they are entitled to.
Transferring equity to family members
There are several circumstances in which the owner of a property may decide to transfer their property to different family members. This can include the addition of an individual to the property deed, as well as removal.
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Transferring equity to a partner
After committing to a long-term relationship or tying the knot, many couples decide to share their assets by adding their spouse to the property deed. The original owner remains on the title deeds in this circumstance and an additional party can become either a joint tenant or a tenant in common by transferring the decided proportion of the property.
To complete this process smoothly, it is highly recommended that you employ the services of a conveyancing solicitor. This will ensure that the correct information is passed onto HM Land Registry and guarantees that ownership is distributed as intended.
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Transferring property after a divorce or dissolution
After the unfortunate circumstance that a relationship collapses, the couple might decide to remove one individual from the title deeds. The property is not sold as one of the original owners will keep ownership of the entire property.
In order to confirm this process, the mortgage lender must agree that the sole party can take responsibility for the mortgage payments. Both members of the couple are exempt from paying stamp duty in this situation unless a new partner moves into the property and takes ownership of a share of the equity.
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Transferring equity to your children
Homeowners have several reasons for sharing ownership with their children. It might be that they want to help their child get onto the property market. Alternatively, they want the child to have ownership of the property after their death but want to avoid the costs of inheritance tax. This often leads to a relationship where the child is granted proportional ownership but the original owner lives within the property until their death.
Transferring equity in this manner follows the same legal process as transferring equity to a partner. A conveyancing solicitor is again incredibly efficient for the precise completion of the legal process.
When transferring equity to their child, homeowners might decide to become tenants in common so that they are not joint owners of the property. This allows them to maintain majority decisions until the child inherits the remaining share of the property.
The legal process for Transfer of Equity
Just like purchasing or selling a property, there are various legal formalities for a successful transfer of equity from your property. To deal with this process hassle-free, a conveyancing solicitor is equipped with all the expertise and understanding that is required to complete the process without a hitch.
My Conveyancing Specialist offer premium online conveyancing services for low prices. Our conveyancing network spans the UK, provided services wherever you need them. To transfer equity from your property with ease, get your free quotation today.
Transfer of equity: Step-by-step process
If you are adding an individual to your property deeds, a single conveyancing solicitor can take care of the following process. Alternatively, if an individual is being removed from your property deeds, you will each need to obtain independent legal advice.
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Complete the change register form (AP1)
An AP1 form is required to notify the HM Land Registry of any changes to the property register. This includes any changes in name or ownership status.
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Complete the necessary transfer form (TR1 or TP1)
The TR1 form is used when the whole property is transferred from one owner to another. Whereas the TP1 form is used when only part of the property is transferred.
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Complete the certificate of identity form (ID1)
This form is required by HM Land Registry to confirm the identity of the individual claiming to be the property owner.
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Calculate and pay for land registry fees
Depending on your application, the cost of making certain changes will differ. The proportion of share that is being transferred and the share of the outstanding mortgage will affect the cost of your transfer. There are bands that determine the fee that you will pay, depending on the value of equity that the additional party will acquire. This can range from £20-£455.
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Complete the process
Once forms have been sent to HM Land Registry and the appropriate fees are paid, you will shortly receive confirmation of the changes to your property ownership. You can then pay for your solicitor’s fees and enjoy the change in ownership of your property.
Gifting a Property
As a homeowner, gifting a home to your children is gaining popularity as a solution to the extreme rates of inheritance tax. The current system requires 40% of an estate over the value of £325,000 to be claimed as inheritance tax. This will greatly reduce the amount of your wealth that is received by your beneficiaries.
For many homeowners, the value of their property would force their wealth over the threshold of inheritance tax payment. By gifting their property prior to their death, the homeowner will be putting barriers in place to avoid the payment of hefty taxes after their death.
Can I gift ownership of my property to my children?
Many homeowners are eligible to gift their property to their children. The transfer would be free from capital gains tax and would also avoid inheritance tax, subject to circumstances. Whilst there are particular tax implications to consider and criteria to meet, the process of transferring ownership as a gift to your children allows you to secure your most valuable asset against inheritance and capital gains tax implications.
When making the decision to gift property to a family member such as your child, it is important that the legal owner is of sound mind and able to make the decision of their own free will. Parents should also seek legal guidance independently of their children in order to make a fair decision for the ownership of their property.
Financially, homeowners should be eligible to gift their property so long as there are no outstanding debts against the home. Whilst a property can be transferred with a proportion of the mortgage remaining, there are implications for transferring a house in order to cause deliberate deprivation of assets or run from personal debts.
Risks associated with gifting property
Whilst you may have made the decision to gift your property to your child for their benefit, it is important to consider your position after the transaction occurs. There are several risks that might influence your lifestyle and should be considered before completing this decision.
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You won’t have any legal rights to the property
After transferring your home, your child is legally the new owner of the property. This could leave you at a disadvantage if you want to remain within the property. You’ll quickly discover that you’ll need to pay rent if you don’t want your child to have to pay inheritance tax. You will also no longer have any legal rights to make decisions associated with the property.
You may be able to agree to a ‘lease for life’ which only terminates upon the death of the parent, however, this is invalidated as soon as the child wishes to sell the home. At this point, you could become homeless without your most valuable asset. Additionally, after the transfer of property, you won’t have any legal rights to request payment of compensation for the gifted property.
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Insolvency
Even if the gifting process has been completed and you no longer reside at your previous property, the transaction could be voided if you run into financial difficulties. Up to five years after the property is gifted, it can be reclaimed should you go into bankruptcy. This would leave both you and your children without a home.
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Inheritance Tax
Whilst parents often gift their properties to avoid their children suffering from inheritance tax, this process must have been completed up to seven years before the property owner’s eventual death to avoid the tax. If the property owner dies within the seven-year period, the property will be taxed along with the rest of their assets if they reach the threshold of £325,000 when combined.
How to complete a Deed of Gift
Gifting your property to your child follows a similar procedure to a transfer of equity. Much like the previous process, it is recommended that a conveyancing solicitor is employed to handle the legalities. They will ensure the timely and accurate completion of the TR1 form and AP1 form to register the transfer with HM Land Registry. Finally, you will also need to complete an ID1 form to verify your identity.
After completing each of these tasks, your property will be transferred to the ownership of your child/children.